IRS and DOL Grant Plan Administrators Some Relief During Pandemic
By: Brydon M. DeWitt & Claire G. Pollock*
The Internal Revenue Service (IRS) and the Department of Labor (DOL) jointly offered extensions and other relief to employee benefit plan administrators that may be struggling to meet various filing, notice, disclosure and amendment deadlines during the COVID-19 outbreak.
Notably, though, the due date for filing the Form 5500, Annual Report, for calendar year employee benefit plans has not been extended. The Form 5500 for a plan year ending December 31, 2019, is still due July 31, 2020. Plan administrators may apply for an automatic extension of the July 31 deadline by filing Form 5558 prior to July 31, 2020. The extended deadlines for Form 5500 filings for non-calendar year plans are described later in this alert.
DOL Guidance on Deadline Extensions
EBSA Disaster Relief Notice 2020-01, offers relief from various requirements and deadlines under the Employee Retirement Income Security Act that would ordinarily occur between March 1, 2020, and the date that is 60 days after the announcement of the end of the COVID-19 national emergency (referred to by both the IRS and the DOL as the “Outbreak Period”).
Notice and Disclosure Requirements. The DOL extended deadlines for furnishing various notices and disclosures to plan participants, beneficiaries, and other persons. In order to qualify for relief from the notice and disclosure requirements, the plan administrator must have acted in good faith to furnish the notice or disclosure under the circumstances. The guidance provides that “good faith” actions include using electronic means of communicating with participants and beneficiaries that had not previously been endorsed by the DOL, including e-mail, text messaging and websites.
The DOL relief applies to disclosures such as the following that would otherwise be due during the Outbreak Period, and extends the deadline to the end of the Outbreak Period:
- Annual Funding Notices
- Summary Annual Reports
- Summary Plan Descriptions
- Summary of Material Modifications
- Qualified Default Investment Alternative (QDIA) Notices
- Fee Disclosure
- Mapping Notices for Change in Investment Funds
- Pension Statements
- Adverse Benefit Determination Notices
- Qualified Domestic Relations Order Notices
Plan Loans and Distributions. If a retirement plan fails to follow procedural requirements for plan loans and distributions, the DOL will not treat it as a failure if:
- The error is solely attributable to the COVID-19 outbreak;
- The plan administrator makes a good-faith effort, under the circumstances, to comply with the loan or distribution requirements; and
- The plan administrator makes a reasonable effort to correct the error as soon as possible.
Participant Contributions. If a plan administrator or service provider is not able to forward participant payments and contributions to the plan’s trust in a timely manner, the DOL will not take enforcement action if the delay is solely attributable to the COVID-19 outbreak and the plan administrator complies as soon as reasonably possible. Note that this relief does not apply to employer contributions.
Blackout Notices. A plan administrator is generally required to give 30 days’ notice if the rights of participants or beneficiaries under a plan will be temporarily suspended. DOL regulations already provide an exception to the 30-day rule if the inability to provide the notice is due to events beyond the reasonable control of the plan sponsor and the fiduciary so determines in writing. The recent DOL guidance eliminates the need for the written fiduciary determination, as the pandemic is, by definition, beyond a plan administrator’s control.
Claims Processing. The DOL acknowledges that there may be instances where plan administrators and participants may have difficulty meeting the prescribed deadlines for claims and appeals. Accordingly, during the Outbreak Period, plan administrators may disregard:
- The date by which an individual must file a claim for benefits under the plan’s claims procedures; and
- The date within which a claimant must file an appeal of an adverse benefit determination under the plan’s claims procedures.
IRS Guidance on Deadline Extensions
Form 5500. IRS Form 5500 filings generally are due on the last day of the seventh month following the end of the plan year. However, the IRS extends the Form 5500 filing for forms due in April, May or June 2020 (including extensions) until July 15, 2020. As noted above, the IRS has not extended the deadline for the Form 5500 filing for a calendar year plan, which is still July 31, 2020.
Required Minimum Distributions (RMDs) for 2020. The IRS issued additional guidance in Notice 2020-51 regarding RMDs. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides for a waiver of RMDs for defined contribution plans and IRAs for 2020. RMDs generally are not eligible as a rollover contribution. The most recent IRS guidance allows taxpayers to roll over a payment received in 2020 that would have been an RMD prior to the enactment of the CARES Act. The IRS also extends the standard 60-day deadline that would apply to a rollover contribution to August 31, 2020. For example, if a participant received an RMD in January 2020, the participant will have until August 31, 2020 to roll over that part of the distribution.
Joint Notice from IRS and DOL
Special Enrollment. HIPAA requires group health plans to provide a special enrollment period in certain circumstances, such as the birth of a child, marriage and loss of other group health plan coverage. The 30-day period to request a HIPAA special enrollment period is extended to the end of the outbreak period.
COBRA Continuation Coverage. The following COBRA continuation coverage deadlines are extended until the end of the outbreak period.
- 60-day COBRA coverage election period.
- 45-day initial COBRA premium and 30-day monthly COBRA premium due dates.
- 60-day period for providing notice to plan of COBRA qualifying events.
- 14-day period for the plan to furnish a COBRA election notice to a qualified Beneficiary.
Note that the delay in HIPAA and COBRA elections could cause hardships due to the prolonged period for which back premiums are due. Employees and COBRA-qualified beneficiaries should be informed that, although they have longer to elect coverage, retroactive premium payments will be due.
Flexibility for Physical Presence Rule
The IRS relaxed the “physical presence” requirement for witnessing plan elections. This relief is available, for example, to participant elections to waive a qualified joint and survivor annuity, which require spousal consent. Notice 2020-42 provides the following relief that is in effect through the end of 2020:
- Election witnessed by a notary public. From January 1, 2020 through December 31, 2020, the physical presence requirement is deemed satisfied for an electronic system that uses remote notarization if executed via acceptable live audio-video technology.
- Elections witnessed by a plan representative. In the case of a participant election witnessed by a plan representative, for the period from January 1, 2020 through December 31, 2020, the physical presence requirement is deemed satisfied for an electronic system if the electronic system uses live audio-video technology that satisfies the following requirements:
- The individual signing the participant election must present a valid photo ID to the plan representative during the live audio-video conference, and may not merely transmit a copy of the photo ID prior to or after the witnessing;
- The live conference must allow for direct interaction between the individual and the plan representative (for example, a pre-recorded video of the person signing is not sufficient);
- The individual must transmit by fax or electronic means a legible copy of the signed document directly to the plan representative on the same date it was signed; and
- After receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative in accordance with the requirements of this notice and transmit the signed document, including the acknowledgement, back to the individual.
Mid-Year Amendments to Safe Harbor Plans
The IRS provided temporary relief relating to mid-year amendments to safe harbor plans. Generally, a safe harbor provision in a 401(k) plan must remain in effect for the entire plan year, unless an employer (i) is operating at an economic loss, or (ii) notifies employees, in its annual “safe harbor notice,” that the employer retains the right to suspend or reduce the safe harbor contribution during the year with 30 days’ notice. Advance notice is required in order to give participants time to change their deferral elections.
In Notice 2020-52, the IRS acknowledges that employers are facing financial challenges during the COVID-19 outbreak, and employers may need to reduce or suspend contributions to safe harbor plans in order to meet other payroll or operating costs. The IRS Notice provides relief in two situations:
- An employer is considering reducing contributions made on behalf of highly compensated employees (HCEs): This change would not jeopardize the plan’s status as a safe harbor plan, but the employer must distribute a revised safe harbor notice, and an election opportunity must be provided to HCEs to whom the change applies.
- An employer is considering reducing or suspending a safe harbor contribution: If a plan amendment to reduce or suspend a safe harbor matching contribution or safe harbor nonelective contribution is adopted between March 31, 2020 and August 31, 2020, the amendment will not jeopardize the plan’s status as a safe harbor plan, regardless of whether the employer (i) is operating at an economic loss, or (ii) notified employees in its 2019 safe harbor notice that the employer retained the right to suspend or reduce the safe harbor contribution. A safe harbor plan sponsor can reduce or suspend a safe harbor nonelective contribution without the 30-day advance notice, provided that (i) the supplemental notice is provided by August 31, 2020, and (ii) the plan amendment is adopted no later than the effective date of the reduction or suspension. However, a safe harbor plan that reduces or suspends safe harbor matching contributions must still provide the 30-day advance notice of the change, because matching contribution levels directly affect employee decisions regarding their elective deferrals.
Williams Mullen is closely monitoring coronavirus developments. Please contact any member of the Williams Mullen Employee Benefits & Executive Compensation Group if you have any questions.
On the latest episode of Williams Mullen's Benefits Companion, host Brydon explains the Department of Labor’s Disaster Relief Notice that extends certain filing and notification timeframes applicable to employee benefit plans and their participants and beneficiaries, including special enrollment timeframes, COBRA deadlines and ERISA claims procedure deadlines in response to the COVID-19 emergency. Click here to listen.
Please note: This alert contains general, condensed summaries of actual legal matters, statutes and opinions for information purposes. It is not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.